I’m often asked by clients about the process for getting the ball rolling once a seller has accepted their offer.  While every deal is different, the following strategy is tried and true. From accepted offer to full contract when there is no real estate agent involved, this is how the most successful residential real estate investors operating in the New York metropolitan area to get their deals.

First, a premise – What works in other states and localities won’t necessarily work in this area. New York is different; primarily because real estate transactions are attorney driven. Both seller and purchaser will have an attorney representing them. Sure, attorneys can be difficult and can be deal killers, but until the local custom changes, these creatures we call attorneys will be a strong presence in your deals. The path of least resistance for getting your deals done will honor this fact and use their presence to your advantage.

What this means is that you won’t be directly involved with the drafting and negotiation of the contract. Your attorney will, the seller’s attorney will, but you will not. Once you’ve accepted that both sides will have an attorney and that those attorneys will take care of the contract your role in making an offer becomes a lot easier and clearer.

Here’s a Few Tools

In this section we’ve provided the following tools to help get you going:

  • The Offer to Purchase. The goals and elements of a written Offer to Purchase.
  • Purpose of a Credibility Sheet. Building trust to stand out from other investors.
  • What To Do If the Seller Doesn’t Have an Attorney.
  • Sample Offer to Purchase. Form document that you can adapt for your deals can be found by clicking here.

I hope you find this information useful.  This strategy is particularly useful when doing assignment and wholesale deals in New York.  Let us know if you’d like us to review your Offer to Purchase after it’s complete or need help putting it together for a deal.  Good luck!

– Jim Clark

To learn more about how Assignment & Wholesaling deals get done in NY, view our video presentation here.

To get learn more about our full Assignments & Wholesaling Program, click here.

The Offer to Purchase

A written Offer to Purchase is a critical early step to ensuring that your deal will proceed smoothly to contract.  Your role at this stage is very simple: Get on the same page with the seller as to the price and basic terms. Then, provide that information to your attorney.  That’s it.  Your attorney will handle the rest.  That’s what they do, and that’s the way 95% of the deals in downstate New York are handled.

Getting on the same page with the seller simply means drafting a simple, non-binding written offer to purchase. The seller will sign, and then should be provided to the attorneys for both sides.  Since there is most likely no realtor involved, you should be prepared to provide this written offer to purchase.  You can find a sample “Offer to Purchase” that some of our most successful clients use here.

Goals of the Offer to Purchase

  1. Communicate the key points, but not the details to the Seller.
  2. Identify the parties involved with the deal and their attorneys.
  3. Give the Seller assurance that you’re serious about proceeding with the deal and establish a timeline and protocol for the deal to move forward.
  4. Lay the groundwork for factors that might trigger a renegotiation of the price.

Key Elements of the Offer to Purchase

  1. Identify Your Offer: The key terms should include the agreed price, the amount of the contract deposit and the timing of the closing.
  2. Identify the Parties: The offer should have the full legal names, addresses and contact information for the seller, you, the seller’s attorney and your attorney.
  3. Identifying the Contingencies: Due diligence, building condition, or as-is.
  4. Communicating That This is Non-Binding: This should be in every Offer to Purchase.  See the paragraph in bold in the sample Offer to Purchase attached.

Consider Attaching a Credibility Sheet to Your Offer to Purchase

  • Your Offer to Purchase may be your only contact with the Seller.
  • Real Estate Investors often have a bad rap of being unscrupulous business people.
  • A Credibility Sheet can help you break down any negative pre-conceived notions.
  • A Seller getting a good vibe about you could be the difference between you getting the deal or not, especially if the Seller has strong personal connections to the property.
  • I’ve included some discussion on the contents of a Credibility Sheet below, but in summary, you want the Credibility Sheet to convey that you’re a straight shooter, have experience, and the personal/financial ability to close.

The sample Offer to Purchase is a general format and can be modified as you see fit.  I don’t think I’ve ever used the same wording for any two deals. Every agreement varies to reflect the specific situation and the parties involved.

The Purpose of a Credibility Sheet for Real Estate Investors

Other than the terms of an offer, there’s only two things a would-be seller wants to know about a purchaser making an offer to buy:

  1. Does this person have the money and expertise to get the deal done?
  2. Is this person going to deal honestly and fairly with me?

This is what the Seller wants to know about you.  Real estate is a very inefficient market. And, unlike the capital markets, investors don’t walk around with a prospectus, and there’s not a lot of publicly available information.  So real estate is a very “human” business. Some information is publicly available, but the rest is based on things like “gut feelings”, reputation and rapport.

The first point (i.e. money and expertise) is very straightforward and will usually be amply communicated through the terms of the deal (i.e. “all cash” with no mortgage contingencies), a proof of funds and some form of track record.  On a more complex deal providing real examples of when you’ve been willing to be creative in the past can help, deals completed, etc. can also be useful.

On the second point, the approach needs to be subtler. You need to convey that when the heat is on, you’re not going to head for the hills.  Simply stating – “I’m a straight-shooter.” or “I always deal fairly.” – won’t cut it.  Giving an example is nice but really isn’t practical given the short piece of space this type of blurb will get and the compressed time you’ll have to convey the point.

So, what to do?

  • When you’ve got a license from which you derive your livelihood – cite it. If some governing board had faith in you, maybe they should as well.
  • If you have a physical office address – mention that. An organization with a physical address lends a sense of permanence and less likelihood that they’re dealing with a fly by night outfit.
  • When you’ve been trusted by reputable members of the community – state how. Do/did you invest money for others? How much? Did those investors get their money back?  A return?
  • If you have family – mention them by name and what they mean to you.
  • If you are involved with your community – describe what you do.

Be succinct but remember that the key with all of this is to reveal some vulnerability, something that you may lose if this thing goes bad and the seller needs a remedy.   The seller has already put themselves out there, and, believe me, they feel vulnerable.  You need to convey that you have something to lose too. This doesn’t mean giving out your home address, because yes, there are nut jobs out there.  It does mean showing a human side.

Most sellers will automatically assume that you’re shrewd and will be a tough negotiator – because that’s what you do for a living as a real estate investor.  They’ll assume that they’re not going to get one over on you, because the first part of your bio shows that you’re a professional.

This blurb is meant to reveal the softer side.

If you’ve done a good job conveying this, the result will be that they’ll let their guard down somewhat.

With that, you’ll get . . .

  1. A foot in the door, when they’ve shut other buyers out, which will give you a competitive advantage over other investors
  2. They’ll give you the benefit of the doubt with certain terms in the agreement, which will give you leverage in negotiating a safer deal for yourself.
  3. You’ll get a better idea of what is motivating them to sell, which will give you the priceless opportunity to specifically tailor a deal that’s more profitable, while meeting their needs – a true win-win.

Give it a shot. You’ll be surprised by the results.

Get our sample Offer to Purchase here.

What if the Seller Doesn’t Have An Attorney?

You’ve got a deal.  You’ve got a motivated seller.  You’re filling out your Offer to Purchase and ask the seller who their attorney is, and they say, “I don’t have one.”  What should you do?

Sellers often won’t have attorneys for several reasons.  Up to now they may not have needed one, or maybe they can’t afford one.  Whatever the reason, this is an obstacle to moving your deal forward, but it’s an obstacle that creates a good opportunity for you if you play it correctly.

Can I Ask My Attorney to Represent the Seller as Well?

Probably not. This would be a conflict of interest for your attorney.  Your attorney has a duty of undivided loyalty to you, but by representing both sides this loyalty would be divided.  This is a conflict of interest that can be waived by both sides, but why would you?  Your attorney is there to protect you and advocate for your best interests, by waiving this you’re giving upon of the key benefits of having an attorney to begin with.

Can I Recommend an Attorney to the Seller That Will Be Friendly To Me?

You could, but I wouldn’t advise it.  Real estate investors have a reputation in New York as unscrupulous business people.  Whether this is earned or not, you’ll find that the laws tend to be skewed against you if you ever have a conflict with a motivated seller.  If you’ve steered a seller to your favored attorney, and the seller later has some remorse over the deal they did with you, the fact that you provided their attorney will likely cut against you in a court of law.  Even if it never gets to a court of law, the perception will look horrible to you and likely tarnish your reputation.

What if the Seller Says They Don’t Want an Attorney?

This is an opportunity for you to show your expertise and gain the seller’s trust.  You can let them know that it’s customary for all parties to have their own attorney.  You can also encourage them to get an attorney, because you want them to feel 100% comfortable that doing a deal with you is in their best interest.  This type of response on your part will convey your honesty and desire to make sure that the seller is treated fairly.

So, What’s the Best Approach?

When a seller doesn’t have an attorney and asks you for a recommendation, the best approach is to have a list of three to five real estate attorneys local to the property that you can provide to the seller.  Providing such a list with the contact information of local attorneys will serve a few purposes. First, it will cement your status as a resource which will help your credibility in the eyes of the seller.  Second, it will give you the opportunity to get them with counsel who you know to be competent in handling real estate matters (which will help you get the deal to closing).  And third, rather than steering them to a single attorney, you’ll be proving the seller with choices.  You will also make it clear that the seller doesn’t have to use any of your recommended attorneys, but if they need a referral it’s there for them.  In my experience, this approach works best, and more times than not, the seller will choose an attorney from your list.

CONCLUSION

If you need some help in making an offer for an investment property, feel free to give us a call and we’d be happy to help.  Or if you’ve made an offer, it was accepted and you need an attorney to represent you in the transaction, we’d be happy to discuss this further with you.  Contact Jim Clark at 631-669-6300 or by email at jclark@clarkslaws.com.